The RBNZ surprised the markets this morning with a larger-than-expected cut in its key interest rate. While the market and analysts had primarily anticipated a 25 basis point cut, the RBNZ went one step further and lowered the cash rate by 50 basis points to 2.5%, Commerzbank's FX analyst Volkmar Baur notes.

RBNZ unlikely to cut interest rates further in the coming months

"In addition, the RBNZ left open the possibility of further key interest rate cuts if necessary. The door therefore remains open. The central bank thus clearly placed more emphasis on the renewed slowdown in the economy than on the recent slight rise in inflation and also appears to be convinced that the weaker economy will dampen inflation in the near future."

"However, I do not expect the RBNZ to cut interest rates further in the coming months. Inflation has recently proven rather stubborn and is likely to have remained well above the 2% target range in the third quarter. In addition, the RBNZ's next meeting at the end of November will be the last for the current chair, Christian Hawkesby, before the new chair, Anna Breman, takes over in December. It therefore seems unlikely to me that interest rates will be lowered further in the next two meetings. In fact, this transition may have contributed to today's larger than expected decision."

"However, the RBNZ has once again made it clear today that its focus is currently much more on the weak economy than on the current rise in inflation. This alone is reason enough for the kiwi to be under pressure and could mean that this remains the case in the coming months."